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Gaz M?tro reports 2008 second quarter results
(Canada Newswire English Via Acquire Media NewsEdge) Attention Business/Financial Editors
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HIGHLIGHTS:
- Net income of $120.1 million, up $15.8 million over corresponding
quarter of the previous year
- Favourable contribution of Green Mountain Power Corporation to net
income of $5.9 million for the first semester
- Portland Natural Gas Transmission System: $5.3 million gain from
partial settlement of Calpine Corporation bankruptcy
- Federal government authorizes construction of Rabaska liquefied natural
gas terminal
- Award to Gaz M?tro, jointly with Boralex Inc., of two wind power
projects for total installed capacity of 272 megawatts, following a
call for tenders by Hydro-Qu?bec Distribution
- Declaration of a distribution of $0.31 per unit payable on July 2, 2008
to Partners of record on June 16, 2008
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MONTREAL, May 9 /CNW Telbec/ - Gaz M?tro Limited Partnership (TSX:?GZM.UN, Gaz M?tro) reports net income of $120.1 million, or $1.00 per unit, for the second quarter ended March 31, 2008, which is $15.8 million, or $0.14?per unit, higher than the second quarter the previous year. For the first six months of the current fiscal year, net income is $189.7 million, or $1.58 per unit, which is $13.6 million, or $0.12 per unit, higher than the same period the previous year.
Net income reflects the non-monetary unfavourable impact of $0.5 million for the second quarter of the 2008 fiscal year ($1.7 million favourable for the first semester of the 2008 fiscal year) related to future income taxes in Intragaz. Excluding those adjustments, adjusted net income for the second quarter of the 2008 fiscal year is $120.6 million, or $1.00 per unit, which is $16.3 million, or $0.14 per unit, higher than the corresponding quarter the previous year. For the first semester of the current year, adjusted net income is $188.0 million, or $1.56 per unit, which is $11.9 million, or $0.10 per unit, higher than the first semester of the 2007 fiscal year.
The increase in adjusted net income for the first semester of the 2008 fiscal year is attributable to various factors, including the consolidation of net income of $5.9 million of Green Mountain Power Corporation (GMP), acquired in April 2007, the favourable $5.3 million impact in Portland Natural Gas Transmission System (PNGTS) of the partial settlement of the bankruptcy of Calpine Corporation (Calpine), the recognition of $2.6 million of the Global Energy Efficiency Plan (GEEP) performance incentive, the recording of anticipated overearnings of $5.9 million (Gaz M?tro's share is $1.4 million, compared to $1.0 million in 2007) as well as the increase in revenues of the Quebec gas distribution activity attributable to the rate increase authorized by the R?gie de l'?nergie (R?gie), which should be offset in the second semester. These favourable items more than offset the expenditures of $1.5?million for the Rabaska liquefied natural gas (LNG) terminal, and the reductions in the net income earned by the Energy Services and Other Sector and by the natural gas distribution activity in Vermont.
"In Quebec, natural gas continued to be less expensive than heavy fuel oil during the quarter, which enabled Gaz M?tro to significantly increase regular and short-term interruptible service sales in the industrial market and thereby generate anticipated overearnings. So far, we have also met our consumption reduction targets in connection with the Global Energy Efficiency Plan, which translated into the recognition of a portion of the performance incentive allowed to Gaz M?tro under the new performance incentive mechanism that has been in force since last October", commented Sophie Brochu, President and Chief Executive Officer.
"Our prudent targeted diversification initiatives have also produced positive results. During the first semester of the 2008 fiscal year, Green Mountain Power Corporation made a substantial contribution to Gaz M?tro's results, increasing the income from our energy distribution activities in Vermont by 50% for the period", added Sophie Brochu.
"Finally, on May 5, Gaz M?tro, in partnership with Boralex Inc., was awarded two wind power projects totalling 272 MW in connection with Hydro-Qu?bec's call for tenders. As was the case with the acquisition of Green Mountain Power Corporation, this represents another important milestone in Gaz M?tro's strategic plan of prudent targeted diversification. We are proud to join our expertise in carrying out large energy projects in order to develop the production of renewable energy in Quebec", stated Sophie Brochu.
Consolidated Results
Consolidated revenues for the second quarter of the 2008 fiscal year are up $80.9 million, or 11.1%, from $731.2 million in the second quarter of the previous year to $812.1 million. For the first six months, consolidated revenues are $1,429.9 million, up $164.7 million, or 13.0%, from $1,265.2?million in the first semester of the 2007 fiscal year.
Consolidated gross margin of $255.4 million is up 17.7%, or $38.4?million, compared to the second quarter of the previous fiscal year. It is $461.3 million after six months, up 14.6% or $58.8 million, compared to the same period last year.
The reasons for these increases in revenues and gross margin are the consolidation of GMP's results since April 12, 2007, higher revenues in the Quebec distribution activity as a result of the rate increase authorized by the R?gie, and the inclusion in revenues of the new Green Fund duty paid to the Quebec government of $9.5 million in each of the first two quarters of the 2008 fiscal year. As amounts collected by Gaz M?tro under the Regulation respecting the annual duty payable to the Green Fund are remitted in full to the government annually, this item has no impact on net income.
Consolidated cash flows from operating activities, before change in non-cash working capital items, are $174.7 million during the second quarter of the 2008 fiscal year, up $8.9 million over the second quarter the previous year. For the first six months of the current year, they are $303.1 million, up $10.9 million. These increases are attributable to, among other things, the increase in adjusted net income for the current fiscal year and heavier energy consumption by Quebec customers because of colder temperatures during the first semester of the 2008 fiscal year than in the first semester last year, partially offset by lower distributions received from companies subject to significant influence than last year.
Investments in property, plant and equipment during the second quarter of 2008 are up $2.9 million to $23.9 million, compared to the second quarter the previous year. After six months, they are up $4.1 million to $59.5 million. The level of capital expenditures is primarily a reflection of extensions and improvements to the natural gas distribution system in Quebec.
Distributable cash, adjusted for the variation in deferred charges and credits, in the second quarter of the 2008 fiscal year is $146.3 million, compared to $192.5 million in the corresponding period the previous year. For the first semester of the 2008 fiscal year, it is $147.1 million, compared to $200.4 million in the first semester the previous year. These decreases are primarily attributable to changes in non-cash working capital items and in deferred charges and credits.
Income Distribution
Gaz M?tro distributed $0.31 per unit during the first two quarters of the current year, the same amount as in the corresponding quarters the previous year.
Gaz M?tro also distributed $0.31 per unit to its Partners on April 1, 2008. Through its General Partner Gaz M?tro inc., it today declared a distribution of $0.31 per unit payable on July 2, 2008 to Partners of record on June 16, 2008. Gaz M?tro expects to maintain this level of distributions.
Energy Distribution Sector
In Quebec - Gaz M?tro-QDA
Deliveries in Quebec (normalized for temperatures and, since October 1, 2007, for wind velocity) during the second quarter of the 2008 fiscal year are 2,047 million cubic metres of natural gas, down 1.8% from 2,084 cubic metres in the corresponding period the previous fiscal year. The main reason for this decrease is the volumes lost following the indefinite shutdown by a large customer, TransCanada Energy Ltd (TCE) in B?cancour, partially offset by higher regular and short-term interruptible service sales in the industrial market in a favourable market context. For the first semester of the fiscal year, volumes of 3,938 million cubic metres are up 0.9% from 3,901 million cubic metres for the first six months the previous year. This is also primarily attributable to higher regular and short-term interruptible service sales in the industrial market where natural gas is less expensive than heavy fuel oil.
Quebec distribution activity's net income in the second quarter of the 2008 fiscal year is $102.9 million, which is up $11.8 million compared to the same period the previous year. For the first semester, net income is $161.7?million, up $7.3 million from $154.4 million in the first six months of the 2007 fiscal year. The main reasons for this are the rate increase authorized by the R?gie, which affected revenues, the recognition of a portion of the performance incentive related to the GEEP for $2.6 million and the sharing of the anticipated overearnings of $5.9 million, $1.4 million of which is Gaz M?tro's share ($1.0 million in 2007). As previously explained, the increase attributable to the rate increase will be mostly offset by higher expenses in the coming quarters.
The rate of return allowed by the R?gie on Partners' common equity for the 2008 fiscal year is 9.52%, which is relatively unchanged from the previous year's 9.57%.
On January 1, 2008, TCE suspended its operations in B?cancour for an indefinite period of time. The 654-million cubic metre estimated reduction in consumption could reduce industrial distribution revenues by approximately $4.1 million in the current year.
On November 26, 2007, the Partnership applied to the R?gie for authorization to change its rates as of January 1, 2008 to reduce the impact of this reduction in consumption on distribution revenues by $1.9 million for the current year. The hearings were held on February 28 and 29, 2008 and a decision is expected in the coming weeks. If this reduction in volumes persists, its impact on the profitability of the Quebec distribution activity in the next fiscal years would be minimized because it would be reflected in rates starting in the 2009 fiscal year.
The government of Quebec fixed December 14, 2007 as the date the Regulation respecting the annual duty payable to the Green Fund came into force. In accordance with this Regulation, Gaz M?tro's annual duty amounts to $38.0 million. Pending a final ruling, the R?gie authorized the Partnership to temporarily bill the cost of the duty to customers as of January 1, 2008.
In Vermont - VGS (natural gas distributor) and GMP (electricity
distributor)
In Vermont, Vermont Gas Systems (VGS) delivered 174 million cubic metres of natural gas during the first semester of the 2008 fiscal year, which is 2.4% more than during the first semester of the 2007 fiscal year.
Electricity volumes distributed by GMP during the first semester of the 2008 fiscal year, excluding volumes that generated gross margin redistributed to customers, totalled 1,004.3 gigawatthours.
Net income from Vermont energy distribution activities (VGS and GMP) is $4.9 million in the second quarter of the current year, an increase of $1.7?million compared to the second quarter the previous year. For the first semester of the 2008 fiscal year, it is $9.1 million, which is $3.1 million higher than the same period last year. These increases are mainly attributable to the recognition of income of $2.3 million in the second quarter of the 2008 fiscal year and $5.9 million in the first semester earned by GMP, which was acquired on April 12, 2007. This increase is partially offset by lower earnings in VGS as a result of a non-recurring favourable adjustment in the first quarter of 2007 and higher financing costs related to the investment in GMP.
On December 31, 2007, Gaz M?tro increased its total interest in one of its companies subject to significant influence, Vermont Transco LLC, from 30.9% to 36.9% after it injected equity of $46.1 million in that company through GMP. The funds which are to be used to finance capital expenditures on electricity transmission activities will improve the Sector's earnings in the future.
Natural Gas Transportation Sector
Net income for the Sector is $10.1 million in the second quarter of 2008, up $4.9 million from $5.2 million in 2007. After six months, it is $14.5?million, up $5.8 million from $8.7 million in 2007. The reason for the increase is a $6.9 million pre-tax gain ($5.3 million after tax) during the second quarter of the current year following partial settlement of PNGTS' claim against Calpine.
As part of the legal proceedings with respect to the bankruptcy of Calpine, one of PNGTS' large customers, PNGTS was successful in having a claim of US$125.0 million recognized by the courts, payable in the form of shares to be issued by the new entity created following the bankruptcy. On February 7, 2008, Calpine made an initial share issue to its recognized creditors, representing approximately 85% of the court-recognized claims. PNGTS therefore received 6.1 million shares of Calpine, which it then sold during the second quarter of the 2008 fiscal year for a total pre-tax gain of US$103.1 million for PNGTS (with Gaz M?tro's share being $38.9 million). In light of the termination of the contracts between PNGTS and Calpine, Gaz M?tro wrote off $34.9 million of regulatory assets included in its investment relating to deferred cost of service and reversed a $2.9 million provision relating to those contracts.
PNGTS filed a rate application with its regulatory body (Federal Energy Regulatory Commission) on April 1, 2008 to get its tolls increased. It will maintain its current tolls until a final decision is announced.
On December 17, 2007, TQM filed a rate application with the National Energy Board (NEB) to have its authorized rate of return increased so it would better reflect its economic reality and business risk. The application covers TQM's 2007 and 2008 fiscal years. The hearings will be held in September and the decision should be announced at the beginning of 2009. The impact of the decision will be recognized when it is announced.
TQM, which had signed a preliminary natural gas transportation contract with TransCanada PipeLines Limited to connect the possible Gros-Cacouna LNG terminal to its pipeline, will not file a request with the NEB following Cacouna Energy's withdrawal of its service application on March 26, 2008. As provided in the contract, TQM will be reimbursed for costs it has incurred and included in deferred charges since the commencement of the project.
Natural Gas Storage Sector
Net income from the Sector is flat for the second quarter of the current year as a result of an unfavourable non-monetary $0.5 million future income tax adjustment. For the first semester, net income is $3.0 million and includes a favourable non-monetary adjustment of $1.7 million representing the change in future income taxes that should normally be paid by the parent company with respect to Intragaz' activities during the years after the new flow-through entity tax rules come into force, i.e. on October 1, 2010 in the case of Gaz M?tro. After six months, net income is $3.0 million, up $1.1?million compared to last year.
Adjusted net income from the Sector is $0.5 million in the second quarter of the current year, down $0.3 million compared to the corresponding period the previous fiscal year. After six months, it is $1.3 million, down $0.6?million compared to the corresponding period the previous year. These decreases are attributable to the R?gie's decision in June 2007 to reduce the Pointe-du-Lac storage rate.
Energy Services and Other Sector
Net income for the Sector is $2.7 million in the second quarter of the current year, compared with $4.1 million the previous year, down $1.4 million. It is $2.6 million for the first semester of the 2008 fiscal year, down $2.6?million from $5.2 million in 2007, primarily as a result of the recognition of a $1.4 million tax benefit in MTO Telecom Inc. in the second quarter of the 2007 fiscal year and lower earnings in the Gaz M?tro Plus group.
In the second quarter of the 2008 fiscal year, the second third, i.e. $2.0 million, of the deferred gain on the sale of 50% of the units of Climatisation et Chauffage Urbains de Montr?al to Dalkia in February 2006 was recognized, following receipt of the second third of the proceeds by the entity that sold the units to Dalkia. The first third, i.e. $2.0 million, of the gain on the sale had been recognized in the second quarter of the 2007 fiscal year.
On April 10, 2008, Gaz M?tro, through its wholly-owned subsidiary Aqua-Rehab Inc., acquired 50% of the shares of M.S.C. R?habilitation Inc. (MSC), which rebuilds water systems, for $1.2 million cash. Gaz M?tro now owns all of the outstanding shares of MSC as a result of this acquisition.
Development Expenditures
Development expenditures recorded for the Rabaska LNG terminal amount to $0.6 million in the second quarter of 2008 and $1.5 million after six months. There were no such expenditures in the corresponding periods last year. Gaz M?tro and its partners, Enbridge Inc. and Gaz de France, felt the additional expenditures were required to better position the project and therefore make it easier to execute LNG supply contracts.
Other net non-allocated items total $0.1 million favourable in the second?quarter of 2008 and $0.3 million favourable after six months of the current year, representing increases of the same amounts compared to the corresponding periods in the 2007 fiscal year.
Business Development
On February 28, 2008, Rabaska Limited Partnership received federal government authorization to build its LNG terminal at L?vis. This was the final important authorization expected, following receipt of the Quebec government's authorization last October. Gaz M?tro continues to work with its partners to secure a long-term LNG supply contract for the project and is having talks with various suppliers.
On May 5, 2008, following a call for tenders by Hydro-Quebec Distribution for 2,000 megawatts of wind power energy, Gaz M?tro, jointly with Boralex Inc, was awarded two wind power projects for total installed capacity of 272?megawatts. These two wind farms, located on the private property of S?minaire de Qu?bec, will be operational by the end of 2013 at the latest. The authorized projects are subject to regulatory approvals and to the signing of a contract with Hydro-Qu?bec Distribution.
Conference Call
The Partnership will hold a telephone conference with financial analysts to discuss its results for the second quarter ended March 31, 2008 on Friday, May 9, 2008 at 3:00 p.m. (Eastern time). The media and other interested parties are invited to listen in. Sophie Brochu, President and Chief Executive Officer, and Pierre Despars, Executive Vice President and Chief Financial Officer, will be the main speakers.
The conference can be accessed live by dialling 416-644-3415 or 1-800-731-5774. It will also be webcast on Gaz M?tro's website (www.gazmetro.com/investors) in the "Webcasts" section.
Rebroadcasts can be accessed for 30 days by dialling 416-640-1917 or toll-free 1-877-289-8525 (access code #21269544), and for 90 days on Gaz M?tro's Website.
Gaz M?tro Overview
With more than $3.3 billion of assets and approximately 1,300 employees in Quebec, Gaz M?tro is a leading Quebec energy company and one of Canada's largest natural gas distributors. Gaz M?tro serves some 171,000 customers in Quebec through an underground pipeline network of almost 10,000 km.
Through its wholly-owned subsidiary, Northern New England Energy Corporation (NNEEC), Gaz M?tro has been active in New England's energy industry since 1986 and has nearly 300 employees there. NNEEC includes Vermont Gas Systems, the sole natural gas distributor in Vermont, and Green Mountain Power Corporation, the second largest electricity distributor in that State.
Through subsidiaries or in partnership with other investors, Gaz M?tro is active in natural gas transportation and storage as well as energy services and water and waste water systems and fibre optic networks. Gaz M?tro also participates in various development projects in the energy sector.
FORWARD-LOOKING STATEMENTS
To enable investors to better understand the Partnership's outlook for the future and make more informed decisions, the matters discussed in this release may contain forward-looking information about Gaz M?tro's objectives, strategies, financial condition, operating results and activities. Such information expresses, as of the date hereof, the estimates, forecasts, projections, expectations or opinions of the Partnership concerning future events or results. Actual results may differ materially from the results anticipated herein and, consequently, we cannot guarantee that any forward-looking statement will materialize. Forward-looking information does not take account of the impact transactions or non-recurring matters, announced or arising after the statements have been made, might have on the Partnership's activities.
Significant risks and uncertainties could cause actual results and future events to differ materially from current expectations. For additional information on these and other factors, refer to the reports filed by Gaz M?tro with Canadian securities regulators. Gaz M?tro therefore cautions readers not to place too much reliance on forward-looking information.
Gaz M?tro intends to update forward-looking information to the extent provided under applicable securities legislation.
ADJUSTED INDICATORS NOT STANDARDIZED IN ACCORDANCE WITH GAAP
In the view of Gaz M?tro's management, certain "adjusted" indicators, such as adjusted net income, adjusted net income per unit and others provide readers with information they consider useful for analyzing its financial results. However, they are not standardized in accordance with Canadian generally accepted accounting principles (GAAP) and should not be considered in isolation or as substitutes for other performance measures that are in accordance with GAAP. The results obtained might not be comparable with similar indicators used by other issuers and should therefore only be considered as complementary information.
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HIGHLIGHTS
3 months ended 6 months ended
March 31 March 31
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(in millions of dollars,
except for unit data which
is in dollars) 2008 2007 2008 2007
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(unaudited) (unaudited) (unaudited) (unaudited)
CONSOLIDATED INCOME AND
CASH FLOWS
Revenues $ 812.1 $ 731.2 $ 1.429.9 $ 1.265.2
Gross margin $ 255.5 $ 217.0 $ 461.3 $ 402.4
Income before interest,
taxes and amortization $ 200.1 $ 169.9 $ 342.2 $ 307.2
Net income $ 120.1 $ 104.3 $ 189.7 $ 176.1
Adjusted net income (1) $ 120.6 $ 104.3 $ 188.0 $ 176.1
Cash flows related to
operating activities
(before working capital) $ 174.7 $ 165.8 $ 303.1 $ 292.2
Capital expenditures $ 23.9 $ 21.0 $ 59.5 $ 55.4
Changes in deferred
charges and credits $ 62.5 $ 29.4 $ 109.9 $ 75.9
Net income per unit
(basic and diluted) $ 1.00 $ 0.86 $ 1.58 $ 1.46
Adjusted net income
per unit (basic and
diluted) (1) $ 1.00 $ 0.86 $ 1.56 $ 1.46
Distributions paid
per unit to Partners of
record on September 15
and December 15 $ 0.31 $ 0.31 $ 0.62 $ 0.62
Weighted average number
of outstanding units
(in millions) 120.5 120.4 120.5 120.4
Interest coverage on
long-term debt over a
period of 12 months
(times) 2.57 2.71
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CONSOLIDATED NORMALIZED
NATURAL GAS VOLUMES (2)
(in millions of cubic metres)
MARKETS
Industrial 983 1.006 2,109 2 ,051
Commercial 824 836 1,435 1,434
Residential 342 347 568 586
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Total 2,149 2.189 4,112 4,071
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OTHER INFORMATION
Authorized rate of return
on deemed common equity
(Quebec distribution activity) 9.52% 9.57%
Credit and stability ratings
Long-term bonds (S&P/DBRS)(3) A/A A/A
Commercial paper (S&P/DBRS)(3) A-1(low) A-1(low)
/R-1(low) /R-1(low)
Stability of distributions (S&P/DBRS) SR-2/STA-2 SR-2/STA-2
(middle) (middle)
Market prices on Toronto
Stock Exchange:
High $ 16.30 $ 17.42 $ 16.40 $ 18.50
Low $ 14.50 $ 15.51 $ 13.77 $ 15.30
Close $ 15.56 $ 16.86
Public ownership in
Partnership (non-
controlling Partners) 29.0% 29.0%
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CONSOLIDATED BALANCE SHEETS
March September
31, 2008 30, 2007
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(unaudited) (audited)
Total assets $ 3,364.7 $ 3,142.5
Total debt $ 1,664.6 $ 1,684.8
Partners' equity $ 1,044.0 $ 921.9
Partners' equity per unit $ 8.67 $ 7.65
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(1) Adjusted to exclude, for the second quarter of the 2008 fiscal year,
recording of unfavourable non-monetary future income tax adjustment
of $0.5 million ($1.7 million favourable in the first quarter).
(2) Estimated volumes at normal temperature and, since October 1, 2007,
at normal wind velocity, in Quebec only.
(3) Through its General Partner, Gaz M?tro inc.
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Gaz M?tro's second quarter consolidated financial report can be accessed in the Investors Section of the Partnership's website at: www.gazmetro.com/investors and is also available on Sedar's website www.sedar.com operated by the Canadian Securities Administrators.
Investors and Analysts: Caroline Warren, Investor Relations, (514) 598-3324; Media: Fr?d?ric Krikorian, Public and Governmental Affairs, (514) 598-3656
Copyright ? 2008 Canada Newswire Ltd. All Rights Reserved.
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